Cyprus tax rates in 2026, and what the reform actually changed

Cyprus rewrote its tax code in December 2025. Parliament approved the package on 22 December, the laws were published in the Government Gazette on 31 December, and the new framework applies from 1 January 2026.

The headline everybody reported was that the corporate rate went up. That is true and it is the least interesting thing in the package. Almost everything else moved in favour of companies and individuals who genuinely operate in Cyprus, and a handful of things moved sharply against arrangements that only exist on paper.

This is what the rates actually are now, what changed, and what the reform did that nobody put in a press release.

Corporate income tax: 15%

The rate rose from 12.5% to 15%, applying to accounting periods beginning on or after 1 January 2026.

The reason is the OECD global minimum tax. Under Pillar Two, groups with consolidated revenue above EUR 750m face a 15% floor, and a jurisdiction with a 12.5% headline rate simply exports the difference to somebody else's treasury. Raising to 15% keeps the tax in Cyprus rather than surrendering it, and it removes the argument that Cyprus is undercutting the floor.

For a company below the Pillar Two threshold, which is almost everybody reading this, the practical effect is 2.5 points. Still among the lowest headline rates in the European Union.

Personal income tax bands

The bands were widened, and the tax-free allowance went up substantially:

• Up to EUR 22,000: 0%
• EUR 22,001 to EUR 32,000: 20%
• EUR 32,001 to EUR 42,000: 25%
• EUR 42,001 to EUR 72,000: 30%
• Above EUR 72,000: 35%

The old zero band stopped at EUR 19,500, so the first change anybody notices is a larger slice of income taxed at nothing.

Two contributions sit alongside income tax and are routinely forgotten when people model a move. Employee social insurance runs at 8.8% up to an annual ceiling, and the General Healthcare System contribution runs at 2.65%, capped on total income rather than per source. That last detail matters: a salary at the ceiling already exhausts the GHS cap, so dividends on top of it add nothing further.

Dividends: the biggest change nobody led with

The Special Defence Contribution on dividends paid to Cyprus-domiciled residents fell from 17% to 5% for profits earned from 1 January 2026.

That is not a trim. It is a two-thirds reduction in the cost of taking money out of a Cyprus company for a domiciled shareholder, and for owner-managed businesses it changes the arithmetic of the whole structure.

Two things travel with it.

Deemed dividend distribution is abolished. The old regime treated a proportion of undistributed profit as though it had been paid out, and charged SDC on it, which forced companies to distribute or pay tax on money they had kept. That rule is gone for profits from 2026 onward, so retained earnings can simply be retained.

Profits earned before 2026 keep the old rate. Reserves accumulated to 31 December 2025 remain subject to the 17% charge, and only if distributed on or before 31 December 2031. If your company has been retaining profit for years, that is a live planning question with a date on it rather than an abstraction.

Non-domiciled residents

Non-domiciled residents pay no SDC on dividends at all, which is the provision that draws founders to Cyprus in the first place. Non-dom status runs for 17 years, and the reform added the ability to extend it by two further five-year periods against an annual fee, prepaid.

The reform also removed a condition from the 60-day tax residency route. It had required that you not be tax resident anywhere else; that condition is gone, which widens the route considerably for people whose circumstances are genuinely split across jurisdictions.

The IP Box: unchanged

The provision that matters most to software businesses was left exactly as it was. Under Article 9(1)(l) of the Income Tax Law, 80% of qualifying profit from qualifying intellectual property is deducted, and the remaining 20% is taxed at the corporate rate.

At 12.5% that produced an effective rate of 2.5%. At 15% it produces approximately 3%. So the corporate rise did touch the IP Box, by half a point, and anyone still quoting 2.5% is quoting the pre-reform figure.

Approximately 3% is a floor rather than a promise. The regime is built on the OECD modified nexus approach, which ties the benefit to the qualifying R&D expenditure behind the asset and who incurred it. Development the company funds itself, or outsources to unrelated third parties, counts toward the qualifying share. Acquired IP does not, and development recharged from related companies outside Cyprus does not. A smaller qualifying share moves the effective rate up.

Qualifying assets include patents and copyrighted software. Brands, trademarks and other marketing intangibles are excluded.

What else moved in taxpayers' favour

Research and development. The super-deduction on qualifying R&D spend runs at 120% and is extended to 2030, with an annual cap on certain claims. For a company building its own technology this stacks with, rather than replaces, the IP Box position, though the interaction has to be worked per asset.

Loss carry-forward was extended from five years to seven, which matters across a long build cycle where the losses and the profits sit years apart.

Stamp duty on documents was substantially removed, though professional commentary is not unanimous on the exact scope of the repeal and some firms report retained exceptions. Confirm your document type against the enacted text rather than a summary, including this one.

Crypto-asset gains for individuals are taxed at a flat 8%, a rulebook most EU states still lack. Losses offset same-year crypto gains only, with no carry-forward and no group relief.

What moved against taxpayers

A jurisdiction page that never tells you what a reform cost is selling rather than advising. Five things went the other way.

The rate itself, from 12.5% to 15%.

Defensive withholding on outbound dividends. Cyprus now charges 17% where the recipient sits in an EU non-cooperative jurisdiction and 5% where it sits in a low-taxed one. Ownership chains drawn before 2026 need re-checking, because a structure that routes through an offshore holding company is now taxed for it at source. This is the clearest signal in the whole package: Cyprus is pricing opacity rather than accommodating it.

Disguised distributions. A charge at 10%, double the new dividend rate, applies where value reaches a resident domiciled shareholder without being called a dividend. Personal use of company assets, assets sold below market value.

A wider employment income base. Inducement, ex gratia and termination payments are expressly taxable, with reporting requirements above a threshold.

Property-rich companies. The capital gains threshold fell from 50% to 20% of value derived from Cyprus immovable property, and consideration is tested against underlying market value.

A worked example, because rates on their own decide nothing

Take a founder who owns a Cyprus company outright, is tax resident in Cyprus, and is non-domiciled. The company makes EUR 400,000 of profit, none of it qualifying IP profit, and the founder pays themselves a salary of EUR 60,000 and takes the rest as dividends.

The company pays corporate tax at 15% on its profit. The salary is deductible to the company and taxed on the individual through the bands above, so the first EUR 22,000 is untaxed and the balance runs through the 20%, 25% and 30% bands. Employee social insurance applies at 8.8% to the annual ceiling, and GHS at 2.65% against the cap on total income.

The dividends are where the reform shows up. As a non-domiciled resident the founder pays no SDC on them at all. Had the same founder been domiciled, the charge would be 5% on profits earned from 2026, where before the reform it would have been 17%.

Now change one fact. Suppose EUR 250,000 of that EUR 400,000 is profit from software the company developed itself, and the nexus position supports it. That slice attracts the IP Box deduction, so 80% of it comes out and the remaining 20% is taxed at 15%. The effective rate on that slice is approximately 3% rather than 15%, and the difference on EUR 250,000 is around EUR 30,000 a year, every year, staying in the company.

None of those figures are a quote. They illustrate which levers move the answer: domicile, the qualifying share, and whether the salary or the dividend route carries more of the extraction.

Who the reform actually changes things for

Owner-managed Cyprus companies with retained profit. The abolition of deemed dividend distribution is the quiet headline. Companies no longer face a charge on profit they chose to keep, which makes retaining earnings a genuine option rather than something the tax code punished.

Domiciled shareholders. Going from 17% to 5% on dividends is the single largest rate movement in the package, and it applies to people who were already here rather than to new arrivals.

Anyone holding pre-2026 reserves. The 17% rate survives on those profits and the door closes on 31 December 2031. Whether to distribute before then, and in what order, is arithmetic worth doing rather than a decision to drift into.

Groups with an offshore holding company above Cyprus. The defensive withholding rates make that chain expensive in a way it was not before. Chains drawn for reasons that made sense in 2020 need re-checking against a list that is reset annually.

Software businesses. Almost nothing changed, which is the point. The IP Box survived a reform that closed or trimmed a great deal else, and the only movement was the half-point that followed the corporate rate.

Very large groups. If consolidated revenue exceeds EUR 750m, Pillar Two applies and the 15% floor is the operative number regardless of what the Cyprus computation produces. Below that threshold it does not apply, and it is worth retesting if the group grows.

So is Cyprus tax free?

No, and the question usually means something else.

Cyprus is a full EU member state with a 15% corporation tax rate, statutory audit, and an IP Box built on an OECD framework. Companies file accounts and pay tax at a published rate. That is the opposite of an offshore shell, and it is precisely why banks and payment providers will accept a Cyprus counterparty when they will refuse a Caribbean one.

What Cyprus does offer is a set of published incentives for people and companies that genuinely operate there: a low headline rate, a reduced charge on distributions, no charge at all for non-domiciled residents, and a preferential rate on qualifying intellectual property. Every one of those requires you to be real. Substance is not a formality bolted on afterwards; it is the condition.

What to do with this

If you are modelling a move, the three numbers that decide it are your qualifying share of IP profit, your domicile status, and the cost of building genuine substance. The rates above are inputs to that arithmetic, not the answer to it.

Figures here reflect the legislation in force from 1 January 2026 and are indicative. Nothing on this page is advice on your facts, and the position that applies to yours comes from a regulated Cyprus tax advisor in a formal opinion, before you commit to anything.